Corker wants overhaul of housing finance but some doubt bill

WASHINGTON - Five years after the federal government rescued mortgage-lending giants Fannie Mae and Freddie Mac, Sen. Bob Corker wants to replace them with a new housing-finance system modeled after the way the government guarantees bank deposits.

Corker, a Republican member of the Senate Banking, Housing and Urban Affairs Committee, is part of a bipartisan coalition that unveiled the Housing Finance Reform and Taxpayer Protection Act of 2013 this week.

The bill would create a Federal Mortgage Insurance Corporation along the principles of the Federal Deposit Insurance Corporation. Within five years of the legislation becoming law, the new FMIC would replace the Federal Housing Finance Agency and the two largest entities it supervises - the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

During the 2008 financial crisis, the Treasury Department took over the running of Fannie Mae and Freddie Mac, pumping hundreds of billions of dollars into them. Both had suffered huge losses related to the collapse of the housing bubble, and lack of investor confidence about their balance sheets threatened further upheavals.

Corker, part of a group of eight Republican and Democratic senators serving as original sponsors of this new legislation, wants to redress the government's dominance of the mortgage market since then.

Under the bill, loan issuers would get government guarantees on new loans only after putting up collateral of 10 cents for every dollar put at risk.

"The framework we're presenting here will protect taxpayers while maintaining market liquidity, and is the best opportunity we'll have to finally move beyond the failed (Fannie Mae-Freddie Mac) model of private gains and public losses," Corker said in a statement.
The bill has already obtained endorsements from a wide range of interest groups related to the housing market.

But not everyone is impressed.

Edward Pinto, an expert on government housing programs at the American Enterprise Institute think tank, said the bill differs little from the way past government programs to promote private-sector lending have started. Too often, he said, those efforts led to large taxpayer losses and price distortions in the home market.

Pinto said all such programs have started under the guise of protecting taxpayers. "That's the tip off right there," he said, referring to the words "Taxpayer Protection" in the bill's title.

Pinto said the Corker bill will institutionalize "government control over virtually every aspect of the mortgage market."

And Congress' track record with similar programs shows the requirement for a 10 percent cushion will get whittled down over time, he said.

But perhaps most importantly, Pinto said, the bill "says virtually nothing about the quality of the loans" guaranteed.